Pence Stands Tall

Posted: Nov 19, 2018 11:16 AM
Pence Stands Tall

Lots of news came out of the South Pacific over the weekend with the biggest headlines coming from the APEC summit gathering. The biggest news was from the tiny nation of Tonga, perhaps better known as the birthplace of the musical group ‘The Jets,’ whose one hit You Got It All reached number one on the Billboard Adult Contemporary chart in 1987.

After calling on nations in the South Pacific to stand up to China and its use of Debt Trap Diplomacy, the president of Tonga changed gears and announced it would join the China Belt and Road initiative. The news came after China announced it would give Tonga a five-year grace period to begin repaying a $160 million loan.

Moreover, China says it’s prepared to lend the tiny Pacific island up to $4.8 billion. Tonga’s annual Gross Domestic Product (GDP) is only $480 million. This comes after Sri Lanka was forced to hand over a pivotal port in lieu of paying back a $1.4 billion loan. Malaysia turned down $20.0 billion and called out this new method of colonization.

Pence Stands Tall

Vice President Pence echoed the concerns of Tonga and Malaysia and many other nations, waking to the idea China’s loans and initiatives aren’t mutually beneficial, aside from giving China ownership of resources and strategic global assets. By most accounts, it was a heated gathering that couldn’t find a common language to come up with a joint statement.

Interestingly, the Prime Minister of Papua New Guinea, which hosted the event, said he was confident that a “free and open trade” would come to the region by 2020. It was an admission that it doesn’t currently exist and will need more time to become a reality.

Bond Yield Woes                                     

In October, soaring bond yields were a sign the economy was overheating, and a signal for more rate hikes from the Federal Reserve. This had been a concern since February when the ten-year yield shifted into high gear and raced toward 3.0%.

By the same token, the so-called yield curve was suggesting a recession right around the corner as the spread closed in between the 10-year and 2-year Treasury yields, and an inverted yield curve seemed unavoidable. Now, the ten-year yield is starting to come down rapidly. The same people that sounded the alarm on a spike in inflation are saying ‘forget that’ because now we are seeing a potential recession, which is a worse problem than inflation.

Meanwhile, the curve is widening again:

  • Aug 24: .200
  • Sep 30: .236
  • Nov 16: .262

So, What is the Message?

As for its prowess as an economic indicator, I must say the ten-year bond yield either isn’t prescient as advertised, or maybe the experts reading the tea leaves have concluded that no matter where yields are, or how slow or fast, they are moving.

I prefer the yield slightly below 3.0% and holding steady without wild jerky moves that seem to be plaguing all asset classes. 

Like so many other things that have been freaking out investors, we should put yields into proper perspective, and note, there has never been a stock market crash associated with a 3.5% yield on the 10-year Treasury.

Ten-Year U.S. Treasury Bond Yield

Great Rotation

For years, investors have been waiting for the Great Bond Rotation; trillions of dollars pouring out of bonds into equities. That hasn’t happened, but there is a major rotation occurring within the equities market.

Lots of money has shifted out of high-flying growth names and in to value names, but also within technology. The winners are older names that had become lumbering giants for a while. The old Four Horsemen of Technology, which led the way during the ‘go-go boom times’ of the late 1990s, have gotten back into the game through strategic acquisitions and moves into things, such as the Cloud, Internet of Things (IoT), Artificial Intelligence (AI), and Big Data.

This is the first big test for the current Four Horsemen. While they all have several irons in the fire, investors aren’t convinced they are moving fast enough to maintain their veneer of invincibility and growth that justifies an almost daily increase in share prices.

Four Horsemen of Technology

Performance 2018 through November 16






















Portfolio Balance Changes

20 equally-weighted positions

Last week was an intriguing week for retail.  Companies focused on higher-end consumers were hammered, while discounters fared better. Specialty retailers like Shoe Carnival soared.  We asked subscribers to take profits on Restoration Hardware (RH) and Children’s Place (PLCE) before they pulled back with the sector.  If you are not currently a Hotline subscriber, click here to get started today. 

I’m still excited about consumer discretionary, but we have less exposure.  Conversely, I’m looking at energy as a place to become more aggressive very soon.  Of course, more rigs came online last week even amid the oil price meltdown.  This kind of stuff is infuriating for investors.  Everyone should have a lot of cash on hand.

Communication Services

Consumer Discretionary

Consumer Staples



Health Care









Real Estate










Today’s Session

Equity futures were slightly higher until news of the arrest of Carlos in Japan sent shock waves through the global business world.  In a press conference, the CEO of Nissan expressed disappointment and frustration after the company found evidence of serious misconduct involving company assets and Ghosn compensation not being reported correctly.

Keep in mind, Ghosn has been considered one of the best CEOs in the world for years, which is why he probably was asked to juggle multiple roles after the alliance of Renault and Nissan (which bought one third of Mitsubishi).  It’s really intriguing this is happening at

all, considering for some time, there has been rumblings in Japan and France over Ghosn power and compensation.

  • $8.5 million Renault
  • $2.0 million Mitsubishi
  • $6.5 million Nissan

It really is amazing how hard Ghosn is being thrown under a bus with Nissan’s CEO (mostly a figure head), who said there was too much concentration of power.

Finding Terra Firma

This could be an intriguing session for sure, after major indices found their footing on Thursday and Friday.  The problem is that most of the things bothering the market are still floating around.  But most of those things were speculation and conjuncture, not facts, or even fundamental trends.

Still, not forcing the issue this morning.